Nigeria’s economic landscape pulsates with the energy of over 39 million micro, small, and medium-sized enterprises (SMEs), according to the National Bureau of Statistics (NBS) 2021 survey. These businesses form the backbone of the nation, contributing 84 per cent of employment and accounting for 96 per cent of all businesses in the country.
Despite their impressive numbers, their true potential remains largely untapped. Transforming these local players into billion-dollar tech titans could be the key to unlocking exponential economic growth across Africa.
A look at the gap: Challenges hobbling Nigerian SMEs
The success stories of developed economies offer a compelling blueprint. For instance, the United States of America saw over 1,000 companies go public in 2021, raising $300 billion.
This vibrant ecosystem thrives on venture capital (VC) funding, with investments totaling $330 billion in 2021. Similarly, the United Kingdom boasts a well-established VC scene and the London Stock Exchange (LSE), with its Alternative Investment Market (AIM) catering specifically to smaller, high-growth companies.
Nigeria, however, faces distinct challenges that hinder its SMEs from replicating this success. Access to capital remains a significant hurdle. While the Nigerian Stock Exchange (NSE) is operational, it lacks the liquidity and number of Initial Public Offers (IPOs) seen in Western counterparts.
In 2021, African startups collectively raised $4.85 billion, with Nigeria being a significant player. However, this pales in comparison to the US and Europe, highlighting a funding gap that hinders Nigerian SMEs from scaling up.
Infrastructure woes further impede growth. Frequent power outages and a dilapidated transportation network create significant operational bottlenecks. The World Bank estimates that sub-Saharan Africa loses an average of 2.10 per cent of gross domestic product (GDP) growth annually due to inadequate infrastructure (World Bank, 2020).
This translates to billions of dollars lost in potential output. A 2023 McKinsey Global Institute report estimates that closing Africa’s infrastructure gap could unlock up to $3.3 trillion in annual GDP growth by 2040.
Regulatory hurdles add another layer of complexity. Navigating Nigeria’s bureaucratic labyrinth can be daunting for even the most seasoned entrepreneur. Streamlining regulations and ensuring consistency are crucial steps towards fostering a business-friendly environment. The World Bank’s Doing Business report suggests that streamlining regulations in sub-Saharan Africa could boost formal employment by 13 per cent (World Bank, 2020).
The skills gap also presents a significant roadblock. The current education system often fails to equip graduates with the practical skills and entrepreneurial mindset needed to thrive in today’s dynamic job market.
According to the NBS, Nigeria’s unemployment rate stood at a staggering 33.30 per cent in Q4 2020. Equipping the workforce with the right skills can empower individuals and fuel innovation and business growth. A report by the World Bank and UNESCO in 2016 estimates that a 1% increase in the average years of schooling in Sub-Saharan Africa can lead to a 0.37 per cent increase in annual GDP growth.
A roadmap to success: How Nigeria can cultivate its silicon savannah
Amidst these challenges, there are glimmers of hope. The Nigerian government, in collaboration with wealthy private individuals, can become the architect of this transformation. Here’s a roadmap to success, backed by compelling data:
Funding the future
Building the Backbone
Prioritize Infrastructure: Investing in reliable power generation, efficient transportation networks, and high-speed internet infrastructure is an investment in the future. Public-private partnerships (PPPs) can be instrumental in bridging the funding gap and accelerating these critical projects. A 2017 World Bank report estimates that every $1 invested in infrastructure in Sub-Saharan Africa can lead to a 10% increase in GDP growth by 2030.
A Call to Action
The potential benefits of a robust infrastructure network in Nigeria are undeniable. It can unlock economic growth, create jobs, and improve the overall quality of life for citizens. By prioritizing infrastructure investments, fostering public-private partnerships, and leveraging innovative financing models, Nigeria can cultivate a thriving ecosystem for SMEs and potentially birth its own generation of “unicorns.”
The success of these SMEs will not only translate into economic growth but also create a ripple effect, empowering individuals, fostering job creation, and propelling Nigeria towards a brighter future.
Elijah Oyeyinka is a seasoned finance executive with over 8 years experience in finance, accounting, and corporate strategy. He is currently an Investment Banking Associate at TD Securities LLC USA. He holds a B.Sc. in Economics from Obafemi Awolowo University (First Class Honours) and an MBA from University of Michigan, Ross Business School. He is also a Chartered Accountant and associate member of ICAN, with cognate theoretical and practical experience.